|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Abbott Capturing Incremental Market Share
Posted by: Victor Selva (IP Logged)
Date: March 18, 2014 05:27PM
Abbott Laboratories (ABT) is engaged in the discovery, development, manufacture, and sale of health care products. The company’s reportable segments include: Established Pharmaceutical Products, Nutritional Products, Diagnostic Products, and Vascular Products. Non-reportable segments include the Diabetes Care and Medical Optics segments.
Let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment opportunity.
The company is shifting its focus in emerging markets to basic products like nutrition supplements and generic drugs. Today emerging markets represents 40% of sales, but Abbott expects emerging markets to represent 50% of its total sales by 2015. In the long run, it expects that growth rates in those markets will be higher than the one of developed markets. Nutrition segment posted great growth in 2012 fueled by well-known brands such as Similac, PediaSure and Ensure. Emerging markets account for 45% of the company's nutritional sales and is focusing on expansion in the emerging markets like China and India in this segment.
In August 2013, the laboratory acquired OptiMedica, an ophthalmic device maker, for $400 million. The acquisition expands its vision care business. The firm it has also completed the acquisition of IDEV Technologies, a privately held company focused on developing next-generation medical devices for use by interventional radiologists, vascular surgeons and interventional cardiologists.
Looking at the financials, the company has a strong balance sheet: good cash that allows it to reward current shareholders through dividends. Dividend-payment history affirms its commitment to maximize shareholder wealth. The company raised its quarterly dividend by 57% to $0.22 per share from $0.14. Its dividend yield is 1.60%, ahead of the industry yield of 1.36%.
The firm is currently Zacks Rank # 3 - Hold, and it also has a longer-term recommendation of “Neutral”. For investors looking for a better Zacks Rank there are no options, because the peer group have the same rank.
In terms of valuation, the stock sells at a trailing P/E of 24.4x, trading at a discount compared to an average of 26.6x for the industry. To use another metric, its price-to-book ratio of 2.4x indicates also a discount versus the industry average of 3.02x and the price-to-sales ratio of 2.9x is below the industry average of 3.02x. All these metrics indicate that the stock is relatively undervalued.
Earnings per share (EPS) increased in a substantial way in the most recent quarter compared to the same quarter a year ago (from -$0.33 to $0.37). In the next graph we can see that it has demonstrated a volatile trend and we include the stock price because EPS often lead the stock price movement.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. It exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Let´s compare the current ratio with competitors in the next table:
As we can see, the firm ratio and is the lowest of the entire peer group.
As outlined in this article, expanding Abbott's presence in key global emerging markets as well as further accelerating the company's growth through acquisitions will give the company a strong impulse and boost results. Moreover, the firm´s EPS as well as the revenues’ growth are demonstrating the improvement of the company´s strength.
I would recommend investors to consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in Q4 2013. Gurus like Paul Tudor Jones (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Daniel Loeb (Trades, Portfolio) have bought it.
Disclosure: Victor Selva holds no position in any stocks mentioned.
Guru Discussed: Daniel Loeb: Current Portfolio, Stock Picks
Jim Simons: Current Portfolio, Stock Picks
Stocks Discussed: ABT, AZN, AGN, JNJ, BMY, AVVB,